Thresholds:
5% of materiality - 2,700,000.00
10% from prior year.
Bank: movement is +60m which is 92%
Accounts receivables: movement is +1,491,150.00 which corresponds to 6%
Questions:
1. Is materiality met for each?
2. Has the threshold for each been met?
The first one, can I consider it as net income? (for example an amount <5% = immaterial, > 10% material and 5-10% requires judgment). I'm not sure what standards India follows but there is a Norwegian Research Council Materiality Calculation Methods which I just read about.
This published paper gives methods for ranges of calculating materiality. Depending on the audit risk, auditors will select different values inside these ranges.
- 5% to 10% of total revenue
- 1% to 2% of total assets
- 1% to 2% of gross profit
- 2% to 5% of shareholders’ equity
- 5% to 10% of net income
They can be combined into blended methods as well. If you probably have access to resources like Audit risk and materiality or anything relevant will help in this question. Now, another aspect here is bank momentum 92% is good sign as per cash flows but nothing else is published regarding threshold variance. Once you quantify materiality i.e., the scope for err, it is too high.
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